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Updated: China scuppers P3 deal

[ June 17, 2014   //   ]

 

Maersk, CMA CGM and MSC have abandoned plans to set up a global P3 alliance after a shock announcement by China’s ministry of commerce that it would not sanction the deal, on 17 June. The announcement comes as a blow to the three operators, who had expected Beijing to follow the US Federal Maritime Commission and European Commission’s earlier lead in sanctioning the move.

However, it appears that Chinese concern over the P3 alliance’s market share on the Asia/Europe and Asia/US trades has prevailed.

Prioer to the Chinese announcement, the prevailing view in the industry was that with its container lines having relatively small market shares on major trades, China had little hope of emulating the P3 lines’ market share in the near term and that the new alliance would have the merit of boosting service frequencies on its main trading lanes. However, the Chinese government appears tpo have taken a different view.

In a statement, CMA CGM said: “Today (17 June) the Ministry of Commerce (MOFCOM) in China announced that they have not given their approval to the P3 Network…MOFCOM’s decision follows a review under China’s merger control rules and is different from the positions of the FMC and the European Commission.

“The P3 partners take note of and respect MOFCOM’s decision.”

Maersk Line, MSC and CMA CGM have agreed to end P3 implementation, it added.

CMA CGM said it was confident that it would maintain its operating performance and continue to over-perform the industry.

However, the news did lead to a sharp fall in the value of Maesk Line shares.

MSC said it would “continue to review all remaining options as to how it can continue to become more cost efficient and improve its service offering in the absence of P3.

“We are disappointed by the decision of MOFCOM but will continue our efforts to operate more efficiently and provide our clients with a comprehensive and excellent service” said vice president, Diego Aponte.

He added: “We could have achieved these efficiencies much faster through P3 but with our investment in more fuel efficient vessels, further economies of scale will still be achieved over a period of time.”

South Korean sanction was also awaited, but with the P3 deal dead in the water, this is largely academic.

The European Shippers’ Council said that it understood the Chinese decision as it had already expressed its concern about the risk of dominant situation created by an alliance that could represent 44% of market shares for trades between China and Europe. This danger had also been evoked by the US Federal Maritime Committee which had given the green light given to P3 only on strict conditions of control, unlike the EU which had authorized P3 without condition.

The UK-headquartered Global Shippers’ Forum added that legal uncertainties had played a part in the lines decision to abandon P3. Secretary general Chris Welsh said: “The unprecedented size and scale that the proposed P3 Global Alliance was going to pose competition regulators was a concern to the GSF.  We had welcomed the recent monitoring arrangements for the proposals, but the P3 appears to have failed the legal hurdles under Chinese competition law which we always recognised was likely to be both an unknown factor and problematic.”
The GSF had raised its concerns on a number of occasions, pointing out its potential to restrict competition and the risk of collusion on rates and capacity due to the wide-ranging scope of co-operation specified within the agreement. 
Earlier that month, the P3 Network alliance had passed an important hurdle – approval by the European Commission. In the European Union (EU), the P3 Network – which had already got the green light from the Federal Maritime Commission in the US in March – was required to conduct a self-assessment and on 3 June the European Commission informed the P3 partners that it did not plan to open proceedings.

The Commission said it would monitor the alliance to ensure it remained compliant with EU competition law, a move that was welcomed by the Global Shippers’ Forum. GSF secretary general Chris Welsh also called on the P3 to assist the Commission in monitoring compliance by providing reports on service performance on specific port pairs, vessel withdrawals including short-term withdrawals and information about future investment plans including future joint investment strategies that would impact on future capacity availability in the markets in which the P3 will operate.

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